Isolation and agricultural productivity

This paper examines the mechanisms that transmit isolation into poverty. In
particular, we study the effect of isolation and transport infrastructure on welfare and
agricultural productivity in the case of Madagascar. Madagascar is a good case study
given the bad shape of its infrastructure and therefore the significant variation in
isolation. Based on comprehensive household survey data combined with a census of
communes, we discover a strong poverty-isolation relationship. Further we find the
inverse relationship between agricultural productivity and isolation to be surprisingly
strong. We isolate the following reasons why productivity might decline with isolation:
(a) transportation-induced transaction costs, (b) the inverse relationship between plot-size
and productivity, (c) increasing price variability and extensification onto less fertile land,
and (d) insecurity.